Investors may have a higher focus on deeptech, Gen AI, climate tech in 2024

In 2024, a majority (77 per cent) of investors expect higher investment momentum while only five per cent expect a slowdown, according to InnoVen Capital: Early-Stage Investment Insights Report: 2024. This is a remarked improvement in early-stage investment sentiment compared to last year’s survey when 57 per cent of respondents expected a slowdown.

“In 2024, we anticipate the early-stage funding environment to improve, with a higher focus on emerging sectors like Gen AI, deep tech, and climate tech,” said Tarana Lalwani, partner at InnoVen Capital India. “However, investors will have a bias for sustainable business models, experienced founding teams, and will do more extensive due diligence.”

The report focuses on investment activity across seed and pre-Series A stages, by analysing market information, along with a survey conducted with 22 leading institutional early-stage investors.

In 2023, the early-stage investments saw the lowest deal volume in four years, but with increased ticket sizes and valuations. Most investors (64 per cent) considered the valuations to be reasonable, compared to only 45 per cent in 2022. The sectors that saw the most interest in 2023 were B2B (business-to-business) platforms, consumer tech, and artificial intelligence.

About 32 per cent of the respondents reported an increase in their investment activity in 2023 compared to 2022, while 41 per cent observed a decrease in the number of deals they closed. The valuation for seed/Pre-A rounds saw an increase, 41 per cent of deals with valuations greater than ten million US dollars, up from 20 per cent in 2022.

Bengaluru and the National Capital Region continue to lead in early-stage investment activity. Additionally, considerable investments were made in start-ups headquartered in Chennai (eight per cent), Pune and Hyderabad (each with four per cent of total deal flow).

Early-stage funds are seeing increasing reliance on a domestic pool of capital, with 45 per cent of funds reporting a 100 per cent domestic capital raise, compared to 20 per cent in 2022. Family Offices and Ultra-High Net Worth Individuals continue to be a top source for domestic capital for early-stage venture capital funds, followed by institutions and funds of funds.